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PART II
ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY NOTE CONCERNING
FORWARD-LOOKING STATEMENTS
The discussion under this caption “Management’s
Discussion and Analysis of Financial Condition and
Results of Operations” and elsewhere in this document,
including, for example, under the “Risk Factors” and
“Business” captions, includes “forward-looking state-
ments” within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements other
than statements of historical fact, including statements
regarding guidance (including our expectations for
the first quarter and full year of 2014 set forth under
the heading “Outlook” below), business and industry
prospects or future results of operations or financial
position, made in this Annual Report on Form 10-K are
forward-looking. Words such as “anticipate,” “believe,”
“could,” “estimate,” “expect,” “goal,” “intend,” “may,”
“plan,” “project,” “seek,” “should,” “will,” and similar
expressions are intended to further identify any of
these forward-looking statements. Forward-looking
statements reflect management’s current expecta-
tions but they are based on judgments and are inher-
ently uncertain. Furthermore, they are subject to risks,
uncertainties and other factors, that could cause our
actual results, performance or achievements to differ
materially from the future results, performance or
achievements expressed or implied in those forward-
looking statements. Examples of these risks, uncer-
tainties and other factors include, but are not limited
to, those discussed in this Annual Report on Form
10-K and, in particular, the risks discussed under the
caption “Risk Factors” in Part I, Item 1A of this report.
All forward-looking statements made in this Annual
Report on Form 10-K speak only as of the date of this
document. Readers are cautioned not to place undue
reliance on such forward-looking statements. We
undertake no obligation to publicly update or revise
any forward-looking statements, whether as a result
of new information, future events or otherwise.
OVERVIEW
The discussion and analysis of our financial condition
and results of operations have been organized to
present the following:
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review of our financial presentation, including dis-
cussion of certain operational and financial metrics
we utilize to assist us in managing our business;
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ended December 31, 2013 compared to the same
period in 2012 and the year ended December 31, 2012
compared to the same period in 2011;
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expectations for selected financial items for the first
quarter and full year of 2014; and
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including our future capital and contractual commit-
ments and potential funding sources.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared
in accordance with accounting principles generally
accepted in the United States of America (“GAAP”).
(See Note 1. General and Note 2. Summary of Signifi-
cant Accounting Policies to our consolidated financial
statements under Item 8. Financial Statements and
Supplementary Data). Certain of our accounting poli-
cies are deemed “critical,” as they require manage-
ment’s highest degree of judgment, estimates and
assumptions. We have discussed these accounting
policies and estimates with the audit committee of
our board of directors. We believe our most critical
accounting policies are as follows:
Ship Accounting
Our ships represent our most significant assets and
are stated at cost less accumulated depreciation and
amortization. Depreciation of ships is generally com-
puted net of a 15% projected residual value using the
straight-line method over the estimated useful life
of the asset, which is generally 30 years. The 30-year
useful life of our newly constructed ships and 15%
associated residual value are both based on the
weighted-average of all major components of a ship.
Our useful life and residual value estimates take into
consideration the impact of anticipated technological
changes, long-term cruise and vacation market condi-
tions and historical useful lives of similarly-built ships.
In addition, we take into consideration our estimates
of the weighted-average useful lives of the ships’
major component systems, such as hull, superstruc-
ture, main electric, engines and cabins. Given the very
large and complex nature of our ships, our accounting
estimates related to ships and determinations of ship
improvement costs to be capitalized require consider-
able judgment and are inherently uncertain. We do
not have cost segregation studies performed to spe-
cifically componentize our ship systems. Therefore,
we estimate the costs of component systems based
principally on general and technical information known
about major ship component systems and their lives